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Friday, June 13, 2008

Ouch! Even a Tim Hortons coffee and doughnut costs more in Canada: report

Julian Beltrame, THE CANADIAN PRESS
OTTAWA - Eight months after the Canadian dollar attained parity with the U.S. dollar for the first time in decades, there's still a big gap between what stores on different sides of the border charge for comparable products.

A Bank of Montreal survey of 17 goods indicates that price differences have narrowed somewhat in the year since its previous comparison but Canadians are still paying 18 per cent more than shoppers in the U.S. for everything from coffee to cars.

When the list was broadened beyond products that were surveyed last year, the 18 per cent gap still remained, according to the study released Wednesday.

Even the quintessential Canadian experience of a large coffee and doughnut at Tim Hortons still costs more north of the border - $2.27 to $2.13, the bank says.

BMO economist Douglas Porter noted that a year ago, when he found a 24 per cent price differential, that retailers reasoned the gap away by, among other things, saying they needed time to clear high-cost inventory from the shelves.

"Well, the loonie has averaged almost parity over the past year, so time's up," Porter said. "I think the time reason is no longer valid."

A more plausible explanation, he said, is that retailers basically charge what local consumers will pay, and the U.S. is among the world's most competitive markets.

Still, Porter said he would not go so far as to declare that Canadians are being exploited, noting that business costs are generally higher in Canada.

He added that in comparison with other countries - Sweden, perhaps - Canadians might find they are getting a steal.

A spokesman for the Retail Council of Canada said there are a number of reasons prices are higher in Canada, including weaker economies of scale, higher labour and transportation costs, bilingual labelling and import taxes.

"Mr. Porter mentions an 18 per cent differential. In some product areas 10 to 15 per cent of that is import taxation just to get the goods into Canada," said Derek Nighbor, senior vice-president for national affairs.

"We want Finance Canada to look at the import tax structure in Canada and make changes where it makes sense," he said.

The explanation didn't square with the Consumers' Association of Canada, which said that if anything, the Bank of Montreal's estimate of an 18 per cent gap is too conservative.

"I hear them making excuses, but whatever they have to do to get prices closer to (parity to) stop Canadians going across the border, that's what they've got to do," said president Bruce Cran. "Consumers are telling us they feel gouged."

Canadians have realized some savings from the appreciation of the loonie, which from an all-time low of 61.79 cents US in early 2002 rose to the 94-cent level a year ago, then closed over 100 cents last Sept. 30 for the first time in three decades, and traded Wednesday at about 98 cents.

The Bank of Montreal report said the most significant price chopping over the past year has occurred in autos, books and clothing.

Books are 8.7 per cent cheaper than this time last year, while new cars cost 6.6 per cent less and clothing prices have been trimmed by 5.1 per cent, according to the survey.

But these goods still cost more in Canada than in the United States - and by a lot. Porter said a mid-range vehicle in Canada costs 19 per cent more on average, and upper-end vehicles are 30 per cent more expensive.

Books remain about 20 per cent costlier in Canada than in the United States.

What's more, Porter says, it appears price reductions in Canadian stores may be all but over.

"It seems that the days of the deepest price cuts are already behind us," he said.

"The three-month pace of core consumer prices has now risen faster in Canada than the U.S., in sharp contrast to the deep discounts of late last year."

Finance Minister Jim Flaherty, who made the price gap a personal project last fall, said Canadians have been too patient with retailers who won't pass on savings from the loonie's appreciation.

Last October, Flaherty summoned retailers to Ottawa to publicly urge them to reduce prices.

"This is the same challenge we had last fall," he said on Wednesday. "I say to Canadians, 'Shop around, put pressure on retailers ... and insist on parity.' "

The minister said that retailers have reduced prices on autos and books, but they need to go further, and other goods need to be included in the price savings.

One reason prices have remained stubbornly high, he said, is that consumer spending has remained strong in Canada, "which permits retailers not to be as competitive as perhaps they ought to be."

Liberal critic John McCallum said it's obvious the minister's intervention had no appreciable impact.

"It was a gimmick," McCallum said. "I don't think this minister has any power over these things. (The price gap has) come down somewhat because of the passage of time and there are lags in these things."

McCallum said the one power the government has is to use the Competition Act to investigate and hold accountable retailers that engage in collusion or uncompetitive behaviour.

But the senior vice-president for national affairs at the Retail Council of Canada suggests that with so many Canadians living close to the border and online purchases increasing, additional savings could come if the two currencies remain close to parity for some time.

"I wouldn't throw in the towel and say that retailers aren't going to be looking to bring prices down in Canada, where they can they will," Nighbor said.

On no item surveyed by the bank was the price lower in Canada, the report shows, although a Grand Theft Auto Video Game went for $59.99 both in Canada and the U.S.,. and comparable Toronto Blue Jay tickets were only slightly higher than what it costs to see the Detroit Tigers, $38 to $37.77.

Other examples of price differentials found include a Toro Snow Thrower ($399 in Canada and $299 in the U.S), a Maytag Washer and Dryer ($2,050 to $1,699), a Coldplay CD ($12.99 to $9.99), and a Monopoly board game ($19.99 to $14.97).

But Canada's modest price reductions do appear to have slowed the cross-border shopping phenomenon, he noted, along with high gasoline prices that have made travel more expensive.

Even so, the report points out that visits to the U.S. have risen 14 per cent this year, whereas Americans have all but stopped coming to Canada.

As for that iconic cup of coffee and doughnut at Tim's, a corporate spokesperson for Tim Hortons said the firm's pricing strategy varies from region to region across Canada and in the U.S.

© The Canadian Press, 2008

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